Yesterday we did a report for clients which compared the current valuation of the S&P 500 to its historical levels. With that in mind, today we looked at the valuation of individual stocks to see how they compared to the P/E ratio of the S&P 500. Currently, 63.6% of the stocks in the S&P 500 have a higher P/E ratio than the index itself. Given the fact that the index is market cap weighted, this indicates that the largest companies in the index have lower P/E ratios than the smaller companies in the index.
Looking at individual sectors, 87.5% of the stocks in the Telecom Services sector currently have P/E ratios that are above the P/E ratio of the index itself. Given the fact that there are only eight stocks in this sector, that means that only one stock (MetroPCS: PCS) in the sector trades at a cheaper valuation than the S&P 500. Other sectors that have a high percentage of above market P/E ratios include Consumer Discretionary, Utilities, and Technology.
On the other end of the spectrum, Energy is the only sector where more than half of the stocks (55.5%) in the sector have below market P/E ratios.